United States District Court, N.D. California
ORDER REQUESTING SUPPLEMENTAL BRIEFING RE: PROPOSED SETTLEMENT
SAMUEL CONTI, District Judge.
This case involves alleged violations of the Fair Credit Reporting Act ("FCRA"). See 15 U.S.C. § 1681, et seq. Plaintiff Jose Rubio-Delgado purports to represent a class of persons aggrieved by Defendant Aerotek, Inc. ("Aerotek"). Aerotek is a recruiting and staffing agency, and Mr. Rubio-Delgado alleges that Aerotek obtained information about its employees and prospective employees without proper notice and authorization. ECF No. 1 ("Compl.") ¶¶ 2, 5-10. The parties have reached a settlement agreement and now seek the Court's preliminary approval. See ECF No. 52 ("Mot."). Plaintiffs have moved for preliminary approval of the settlement agreement, and the motion is unopposed.
II. LEGAL STANDARD
Federal Rule of Civil Procedure 23(e) requires judicial approval of any settlement by a certified class and demands that the settlement be "fair, reasonable, and adequate." When evaluating a settlement agreement that applies to a class, courts may consider some or all of the following factors:
 the strength of plaintiffs' case;  the risk, expense, complexity, and likely duration of further litigation;  the risk of maintaining class action status throughout the trial;  the amount offered in settlement;  the extent of discovery completed, and the stage of the proceedings;  the experience and views of counsel;  the presence of a governmental participant; and  the reaction of the class members to the proposed settlement.
Rodriguez v. W. Publ'g Corp., 563 F.3d 948, 963 (9th Cir. 2009).
At the preliminary approval stage, however, the Court need not make a final determination as to the fairness, reasonableness, and adequacy of the settlement. Instead, the Court may grant preliminary approval of a settlement if the settlement agreement
(1) appears to be the product of serious, informed, non-collusive negotiations; (2) has no obvious deficiencies; (3) does not improperly grant preferential treatment to class representatives or segments of the class; and (4) falls within the range of possible approval.
Harris v. Vector Mktg. Corp., No. C-08-5198 EMC, 2011 WL 1627973, at *7 (N.D. Cal. Apr. 29, 2011).
The settlement agreement in this case calls for Aerotek to pay $5, 000, 000. ECF No. 50-2 ("Settlement Agreement") ¶ 27. If enough class members submit claims, however, the agreement requires Aerotek to make an additional contribution to the settlement fund, enough to ensure that each class member receives $42.32, up to a maximum of $262, 500. The agreement provides for Mr. Rubio-Delgado's lawyers to recover up to 25% of the settlement - $1, 250, 000, assuming Aerotek is not required to make any additional contribution - as attorney's fees. Id. ¶ 33. Additionally, the Settlement Agreement indicates that the parties have agreed to pay a total of $5, 000 from the settlement fund to the three named plaintiffs. Id. ¶ 34.
The Court has serious concerns about the fairness and adequacy of the settlement. The settlement class includes "[a]ll individuals on whom Aerotek or its agents procured consumer reports for employment purposes in the period beginning two years prior to the filing of the Complaint and continuing through the date the Class list is prepared." Id. ¶ 2. Aerotek's records indicate that the number of class members is about 588, 000. Id. The Settlement Agreement provides for the settlement fund to be distributed pro rata (after the deduction of attorney's fees, litigation expenses, settlement administration costs, and incentive awards) to all class members who properly submit claim forms. Id. ¶ 29. If all 588, 000 class members were to claim their shares of the settlement, Aerotek would be required to make the maximum possible contribution to the settlement fund, which would contain a total of $5, 262, 500. Once the proposed attorney's fees and incentive awards are deducted, $3, 941, 875 would remain in the fund. Thus each class member would receive about $6.70.
Plaintiffs' claim for relief seeks $100 to $1, 000 for each violation of FCRA. See ECF No. 1 ("Compl.") ¶ 60. Those amounts are based on the statutory damages provided for by FCRA. See 15 U.S.C. § 1681n(a)(1)(A). Plaintiffs also sought punitive damages, costs, and attorney's fees. Compl. ¶¶ 61-62. Therefore, even assuming the Court were to deny Plaintiffs' punitive damages claim in its entirety and refuse to award attorneys' fees and costs, the proposed settlement offers each class member 6.7% of the minimum amount recoverable were plaintiffs to prevail at trial, and 0.67% of the maximum recovery. That is plainly inadequate. See, e.g., Trombley ...